To The Moon

Buying or selling a home with a few clicks like on e-commerce website? Here you go,$Opendoor Technologies Inc(OPEN)$‌(OPEN).

OPEN is a leading digital platform for residential real estate. By leveraging software, data science, product design and operations, it has rebuilt the service model for real estate and has made buying and selling possible on a mobile device.

The raising inflation raising interest environment may not be good for real estate player like OPEN. However, OPEN has proven its business model.

OPEN recorded the first GAAP profit in Q1 2022. Revenue growth of 590% from 747mil in Q1 2021 to 5.15bil in Q1 2022 or 35% growth from previous quarter. Contribution Margin (CM) was 6.4% in Q1 2022 versus 10.2% in Q1 2021. This was at the high end of their target range. The baseline annual Contribution Margin target is 4-6%, the long term target is 7-9%.

In the shareholder letter : “Adjusted Net Income is a good proxy for operating free cash flow (FCF), as it isolates the operating performance of our business from changes in home inventory that are primarily funded through non-recourse debt facilities. It is worth noting that we are already achieving operating FCF breakeven while operating at the high end of our current Contribution Margin target range.”

Though the numbers are good for Q1, do expect some slowdown in second half the year given the uncertainty in marco environment. Anyway the CEO is confident in his company, he wrote in its shareholder letter: “While recent headlines regarding rates and affordability have cast doubt over the short to medium-term outlook for housing, we are confident in our ability to hit our financial targets across cycles. This is due in part to the cost structure and pricing improvements that we have made, which provide the necessary margin of safety in our unit economics. Also, the combination of holding highly liquid, sale-ready homes with the fact that home price declines during recessions have proven to be slow moving, makes navigating market turbulence very manageable. In addition, our offer price incorporates home price appreciation (HPA) forecast movements, which means that our systems are built to succeed across market cycles.”

OPEN serves both ends of the market, the sellers and buyers.

The offer requests which reached another all-time high was up 186% versus prior year. Homeowners initially request an offer from OPEN, then may be compared with price they got somewhere else. Eventually 35% of these homeowners will sell to OPEN, as it has maintained a real seller conversion of over 35% and Net Promoter Score (NPS) north of 80. The purchase offer to home buyers also hit all-time high.

OPEN’s success is highly related to its pricing. In the investor presentation, OEPN mentioned they have about 24% error reduction in valuation model. They have accumulated 375k of home assessment. Also to improve further, they have added images as an input to the pricing model. We know that AI producing better result when more relevant data is fed to the machine. In Q1,they added new computer vision capabilities, which leverage AI to systematically derive information about home conditions. To date, they have processed over 500 million property images and they are adding this data to pricing models and processes.

OPEN has managed the inventory quite well. They evaluate their portfolio health metrics relative to the broader market (as observed on the multiple listing services (MLS)) as another key indicator of inventory management performance. By percentage of homes “on the market” for greater than 120 days (as measured from initial listing date), as of March 31, 2022, such homes represented 7% of their portfolio, compared to 24% for the broader market.

OPEN has launched in 48 markets and will continue to expand. They are on-track to reach 50bil revenue and 100 markets. Let’s see in the future.

A summary from OPEN investor presentation: